Canadian and Japanese workers can each produce 4 cars per year. A Canadian worker

can produce 10 tonnes of grain per year, whereas a Japanese worker can produce 5

tonnes of grain per year. To keep things simple, assume that each country has 100

million workers.

a. For this situation, construct a table like what we had in the class.

b. Graph the production possibilities frontier of the Canadian and Japanese

economies.

c. For Canada, what is the opportunity cost of a car? Of grain? For Japan, what

is the opportunity cost of a car? Of grain? Put this information in a table.

d. Which country has an absolute advantage in producing cars? In producing

grain?

e. Which country has a comparative advantage in producing cars? In producing

grain?

f. Without trade, half of each country's workers produce cars and half produce

grain. What quantities of cars and grain does each country produce?

g. Starting from a position without trade, give a numerical example in which

trade makes each country better off.

2. Are the following statements true or false? Explain in each case.

a. "Two countries can achieve gains from trade even if one of the countries has

an absolute advantage in the production of all goods."

b. "Certain very talented people have a comparative advantage in everything they

do."

c. "If a certain trade is good for one person, it can't be good for the other one."